The debate surrounding VAT reductions for the UK hospitality sector was reignited in Parliament this week as MP Emma Lewell-Buck questioned Chancellor Rachel Reeves on the potential for lowering VAT in the sector. Lewell-Buck emphasized the competitive disadvantage UK businesses face compared to their European counterparts, where VAT rates for hospitality are significantly lower.
Ms Lewell-Buck said:
“As my right honourable friend knows, South Shields is a gorgeous coastal tourist town and we pride ourselves on our small businesses and our strong hospitality industry.”
“But she will also know that they are struggling from years of neglect from the benchers opposite. In order to help them, can she please outline what considerations she has given to reducing VAT for hospitality, leisure and tourism.”
Across Europe, many countries have adopted reduced VAT rates for hospitality to boost tourism and local economies. France, for example, applies a reduced rate of 10% to accommodation and dining, while Spain and Germany maintain similar measures to support their hospitality industries. By contrast, the UK’s VAT rate of 20% remains one of the highest among major economies, leaving UK hospitality businesses struggling to compete.
Hospitality industry groups such as UKHospitality and the British Beer & Pub Association (BBPA) have long campaigned for a VAT reduction. Industry leaders argue that such a measure would stimulate growth, encourage domestic and international tourism, and provide a much-needed lifeline to businesses grappling with rising costs and economic uncertainty.
Kate Nicholls, Chief Executive of UKHospitality, commented:
“A reduction in VAT for hospitality would not only create jobs but also boost the UK’s competitiveness on the global stage. It’s a proven strategy that has worked across Europe and would pay dividends for the Treasury in the long term.”
Emma McClarkin, Chief Executive of the BBPA, echoed these sentiments, stating:
“The UK’s high VAT rate is stifling growth in the hospitality sector at a time when it needs support the most. Reducing VAT would bring tangible benefits to businesses and consumers alike, driving footfall and boosting spending across pubs, restaurants, and hotels.”
In response to Lewell-Buck’s question, Chancellor Rachel Reeves expressed her awareness of the challenges faced by the hospitality industry but stopped short of making any commitments.
Ms Reeves stated: ” In the Budget we were able to extend a business rates relief of 40% for the retail, hospitality and leisure sectors in the next financial year and then move it onto a fairer footing so that high street businesses and smaller businesses pay fairer rates of business tax compared, for example, with online giants.”
Taking top X Kate Nicolls added: “Thank you for your continued support and for raising such an important issue . Hospitality led regeneration is so important for investment in good quality jobs, people and communities like South Shields and reducing the tax burden will help drive that.”
Another X poster said: “Thank you for asking the question. Tone deaf answer as usual. Her 40% reduction increases the bill for the tax year as it was previously 70%, while increasing the wage bill for these biz through employers NI. We are far worse off under this Gov, didn’t think that was possible!”